Wednesday, August 5, 2015

When It Comes to Personal Finance, Don't Focus on the "Finance" Part to the Exclusion of the Personal Part

Hello everyone.

Today, on my Facebook page, I posted an article about how you should put a price tag on hard to quantify things in order to determine whether or not you are making the right financial decision. And I couldn't agree with myself more! :-D So many times in personal finance, the pundits emphasize the 'finance' part of personal finance, and understate the importance of the 'personal' part - failing to realize that the two are supposed to work in unison.

I think I've said this before in a prior post, or a prior YouTube video, but I think it bears repeating just to demonstrate my point. Many moons ago, when I was fresh out of law school, and looking for a job as a financial adviser, I was talking to a financial adviser whom I wanted to work for - let's call her "Cassie" - and she gave me some unsolicited advice. When I was telling her about the amount of student loans I had, and what that meant for the commission-based nature of financial advising, she told me that I should pay down my student loans at all costs. That makes sense to some extent, but that's not the stupid/crazy part of what she said. The crazy part came when she followed up her sentence about paying down my student loans as quickly as possible with..."even if it means not eating or skipping a few meals a day."

Now, I'm all for people getting out of debt. I'm all for people making sacrifices to achieve their goals, financial and otherwise. But not eating???!!! Skipping a few meals a day???!! She didn't even say "cut your grocery budget" or "eat ramen". She just flat out said pay down your loans even if it means not eating. That's by far one of the stupidest things that I've ever heard. How will I have the energy to do work if I'm not eating? How can I focus on an empty stomach?

There are plenty more so called "advisers" out who will tell you a whole bunch of non-sense, like retirement is the only thing that you should be focused on, or that maxing out your 401(K) is the best idea in the world. Some of these platitudes are spouted by well-meaning people and some of it might even be good advice. But the advice is not for everyone. What this advice often fails to do is take into account that people want to live, and not just wait until 60 years of age to enjoy their life. Or live a life purely ruled by spreadsheets and numbers.

For instance, if you value being able to spend your time as you choose or be a freelancer or want retire early and see the world, maybe you should get aggressive with your investments and place all of your money into a taxable account instead of retirement accounts . If you value family and want to stay home with your kids while one spouse works, that might be a 'bad' financial decision looking at pure numbers, but it might be an excellent decision in terms of the psychic/emotional benefits that it provides for you, your spouse, and your family. If you don't care about using credit anytime in the near future, but would rather take a lower paying and more fulfilling job, maybe you shouldn't focus on aggressively paying off all of your debt as soon as possible. (*Disclaimer: You should always pay off your credit card debt as soon as possible as the interest rates are so extraordinarily high.)

The moral of the story is that everyone has different priorities. Sometimes those priorities might conflict with conventional financial advice and may seem like they lead to 'bad' financial decisions. However, the whole point of having your finances in order is to be happy. We all hope to make good financial decisions because we want more money, or at least enough money to live, and this will make us happy. So why not just prioritize your version of happiness - which is intensely subjective and personal - instead of making decisions solely based on numbers and listening to pundits/financial advisers who tell us not to eat.